The big news story in licenses last week was the German Federal Court of Justice's ruling on re-selling Oracle software: Wendy Grossman explains what it means and gives her take on the story.

A lot of people have wondered for a long time whether the licensing conditions imposed by software publishers really would stand up in a court of law. And now we know: this week the Court of Justice of the European Union ruled (PDF) that people who buy downloaded software cannot be prohibited from selling on their used licenses.

The case: the German company UsedSoft advertises and sells, among others, licenses to Oracle software. These it acquires from Oracle customers who either are no longer using them or bought group licenses (sold in blocks of 25) and don't need all of the seats. The customers then download the software from Oracle's Web site. The license you buy from UsedSoft includes the remaining portion of the maintenance contract with Oracle, which marks its licenses "non-transferable". Oracle sued to stop this; the German regional court upheld the complaint. UsedSoft appealed to the German Federal Court of Justice, which referred the case to the EU.

With physical objects we take for granted the concept the US calls "first sale doctrine". That is, the person or company who manufactures the object only gets to sell it the first time. Thereafter, it's yours to do with what you like - trash it, recycle it, loan it out, sell it on to someone else, even burn it, all without owing anything to the person who made it and/or sold it to you. Software manufacturers, however, have emulated the publishers of books, music, film, and other media by unbundling the right to distribute the physical object and the right to make copies of the content embedded in it. When you buy a book, you gain the rights to that one copy of the book; but you don't gain the right to scan in the contents and give away or sell new copies of the contents. Or at least, if you do such a thing you would be wise to be Google Books rather than a 22-year-old college student with broadband and a personal Web site.

Usedsoft v Oracle revolves around the interactions of several pieces of EU law covering copyright and the distribution of goods, but ultimately the court's decision is clear enough. The purpose of the "exhaustion" of the manufacturer's distribution rights after the first sale was, in the ruling's argument to ensure that the original manufacturer should not be responsible for damage to the physical object that takes place between the first and second sales. Digitally distributed copies (especially from the original site) don't have this problem. Hence the ECJ's decision: first sale doctrine applies to software. The one caveat in all this: the original license-holder must delete or render unusable his original licensed copy of the software, even though it's difficult to prove he's done it.

The conditions of software licenses have never seemed fair. For one thing, back when software was primarily distributed in shrink-wrapped packages, you couldn't read the license to agree to it until you'd rendered the software unreturnable by opening the package. "Clickwrap" more or less ended that issue.

For another thing, the terms are contrary to the way humans normally think about the objects they acquire. In England, as the retired solicitor and fellow Open Rights Group advisory council member Nicholas Bohm explained to me for the Guardian in 2008, this has always seemed particularly dubious; precedents have established that valid terms and conditions are a contract set at the point of sale. In his example, a notice in a hotel room on the wardrobe warning that you leave items there at your own risk has no legal weight because the contract was made at the reception desk.

Finally, with physical objects we take it for granted that we have the right to demand satisfaction - repair, replacement, or refund - if the item we buy is flawed. Obviously, this right has its limits. We can reasonably expect a refund or replacement for a piece of clothing that rips badly or discolors on first washing (assuming we haven't done something dumb). And we can reasonably expect the manufacturer to pay for repairs to a new car that turns left when you steer right, unstoppably leaks fluids, or whose battery overheats to the point of bursting into flames. With software, we are pretty much stuck with the bugs and security holes, and software licenses pretty much universally disclaim liability for anything that happens when you install and use the software. This was the subject of a failed attempt in the around 2000, to modify the Uniform Commercial Code to both hold software publishers liable for defects - but in return allow them to impose any restrictions they wanted.

The impact of this week's judgment will be interesting. How will it affect music, ebooks, DRM, movies, games? That's a question for the lawyers and judges in future cases.

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